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Five Mistakes that will destroy you as a cryptocurrency day trader
Cryptocurrency day trading is beyond doubt, one of the most profitable venture on the internet. Day trading cryptocurrency comes with an incredible profit return for traders who understand the dynamics of the market. Those who treat it as a game of chance and gamble their luck through are bound to be caught in the web of some minor mistakes that have history of making trading a nightmare for traders. In a bid to help traders achieve their profit targets, this article will introduce readers to some of the mistakes that can ruin their account and even their life.
Trading More than they can Afford to Lose
This seems to be the most common mistake overlooked by traders, and has destroyed countless of them. In cryptocurrency day trading, one thing is always clear: there is no 100% guarantee of success. Even the surest strategy employed at the right time of the market has a possibility of turning out to be a disappointment. Yes, the bigger the capital, the bigger the profit. Similarly, the bigger the capital, the bigger the risk. The imagination of buying Lamborghini within the twinkle of an eye makes people trade with their live-saving money, and others, with borrowed money they cannot afford to pay, just to hit what they think is supposed to be the jackpot.
Traders must not lose their rationality to the potential reward, but instead, they must trade with an amount they can afford to lose. This is one of the best risk management strategy in the market. Almost all the successful traders started slowly with daily targets and made their way to the top as they achieved the bigger goal without allowing their emotions to cloud their sense of judgment.
Trading on Crypto Platforms with Low Liquidity.
In cryptocurrency trading, every moment matters. Traders constantly monitor the market and execute their strategy at the right moment. This means liquidity is very important in the making of a successful cryptocurrency trader. Some trading platforms have less liquidity for some selected asset crypto pairs and vice verse. What this means is that, when you enter a position with less liquidity, the likelihood of your selling order being stuck for several minutes or even hours without a buyer is very high. This affects traders in making use of another moment as they await for the order to be executed. Also, most traders prefer to trade in the weekends and the midnight. The liquidity for most assets in these periods of the day are usually low, affecting the flow of the trade.
Traders are therefore advised to choose a particular exchange, and monitor the periods their traded assets have high and low liquidity to avoid entering a position they cannot exit.
Ignoring the Latest Happenings in the Market and Solely Depending on Indicators.
Technical analysis is a must for all cryptocurrency day traders. It provides a good ground to invest with rational decisions and subdue the effect of emotional trade. However, placing much emphasis on technical analysis and its indicators can equally destroy your trading account. One of the common strategy used in day trading is the correlation of Bitcoin and any selected asset. The usual idea is that Bitcoin has a history of dragging other cryptocurrencies along when its price skyrocket or stage a bear run. Eg. When the price of Bitcoin rises ahead of Litecoin which has recorded a significant fall, traders buy Litecoin with the idea that the law of correlation would work to drag Litecoin along with the increasing price of Bitcoin. Surprisingly, Litecoin would continue to fall as Bitcoin stays at the top, or Bitcoin may even end up joining Litecoin down the price curve.
What this means is that there is something more stronger than indicators that dictate the success rate of executed technical analysis, and that is “Market News”. When the price of Bitcoin rises as the price of Litecoin struggles at the bottom of the price curve, traders mostly think Litecoin would surely rise to catch up. However, when there is an announcement of government crackdowns on Litecoin, its price would even go down further. Similarly, an announcement of Litecoin and Ethereum partnership deals can make the prices go against the trading direction of Bitcoin. Traders must treat breaking news of the assets equally important as the technical analysis.
Making Deposits Directly From Wallets
It is worth noting that most cryptocurrency products are not designed for trading purposes. Time consumed in initiating transfers, verifying user identity and waiting for confirmation affects the smooth delivery of day trading. Traders are therefore advised to transfer all trading capital into an exchange and initiate day trading from the exchange wallet instead of the ledger wallets.
Trading Based on Emotions
The Fear of Missing Out (FOMO) has destroyed a lot of traders and produced disappointed investors over the years. Most traders rely on their emotions to jump on a moving train just to realize it is about to crash. It is worth noting that there is no room for emotional judgment when it comes to technical analysis. On this note, traders must not be quick to buy asset because it recorded 30% gain in the last 30 minutes. The gain must be tested with breaking news and indicators such as the volume indicators to confirm whether the price movement is just a camouflage.
This article does not necessarily reflect the opinions of the editors or management of EconoTimes.